Is America at the Beginning of Economic Decline - Case Study Example

Is America at the Beginning of Economic Decline? Table of Contents Introduction 3 Economy of U.S 4 Goods & Services 5 Service Economy 6 Workers and Productivity 8 Macroeconomic Policy 9 Challenges 9 Conclusion 10 References 11 Bibliography 13 Introduction United States of America (U. S. A.) is the largest and the most powerful economy all over the world. In the market-oriented economy of today, individuals and the companies take the decisions. The federal and state governments purchase the required goods and services from the private marketplace. U. S. companies enjoy more flexibility than the companies in Western Europe. Japan decides to extend the capital plant, to hire more workers, and to produce new products. Simultaneously, they face obstruction to enter as a new entrant to their rivals markets compared to the foreign companies face while moving in the U. S. markets. US companies are leading in technology, mainly in computers and also in aerospace along with medical and military equipment. The surge of technology explains the initial development of “two-tier labour market” where those at the end lags because of the education and the other is professional or technical skills that remains at the top and therefore do not get equal pay raise and provide health insurance with other benefits. Rise in oil prices in between 2005 and early 2008 endangered with inflation and unemployment, as high price of gasoline were more than consumers budgets. Import of oil accounts for two-thirds of US consumption. Long-term difficulties were due to insufficient investment in the economic infrastructure, rapid rise of medical and pension value of an aged population, rich in trade and budget deficits, and lack of progress in the income of family in the lower economic groups. The import and export trade deficit was about $ 840 billion in the year 2008 and shrinked to $ 450 billion in the year of 2009. The world economic decline due to the sub-prime mortgage crisis, failure of investment banks, and decrease in prices of home indulged the United States into recession by the mid-2008. GDP depreciated till the third quarter of 2009. This is the longest fall after the Great Depression of 1929. To stabilize the financial markets, US Congress introduced $700 billion Troubled Asset Relief Program (TARP) in the year of 2008. US government used these funds to buy equities from US banks and other companies. In 2009, the US Congress passed a bill of $787 billion to stimulate the fiscal policy to be use for more than 10 years out of which two-thirds to be spent additionally and one-third on tax cuts and also to create jobs and to recover the economy. About two-thirds of the revenue will be injected into the economy by 2010. In the year 2010, President signed bill of health insurance into law that will cover an addition of 32 million American nationalities by the year of 2016, by private health insurers and Medicaid for the poverty stricken people (Central Intelligence Agency, 2010). Economy of U.S USA ranks second in GDP, which amounted to $ 14.26 trillion in the year 2009. But in comparison to $ 14.61 trillion which was noted in 2008, it had reduced. GDP in terms of per capita of U.S. was $ 46,400 in 2009 and ranked as eleventh all across the world. U.S. also ranked second in total imports, approximately $ 1.445 trillion in 2009, which is less in comparison to $ 2.117 trillion in 2008. United States undertook an external debt, which is estimated to be $13.45 trillion in 2009 and is slightly less than 2008’s debt of $ 13.75 trillion. In terms of foreign investments at U. S., the inflow was $2.398 trillion in 2009, which is slightly more than $2.367 trillion of 2008 and the inflow of the FDIs from abroad was $3.259 trillion in 2009 more than $3.162 trillion in 2008. Exports of goods were $994.7 billion in 2009 less than $1.277 trillion in 2008. US had got more maritime container traffic than China. U.S’s reserves of foreign exchange and gold were $77.65 billion in 2008. In consuming petroleum, U. S. had consumed 19.5 million bpd and import of oil, 1.433 million bpd in 2008. Investment is 12.5% of GDP in 2009 (Central Intelligence Agency, 2010). Goods & Services Economy of a country depends on the production of goods and services. Gross Domestic Product or GDP measures the result produced by the property and labour in U.S. Labours utilise the natural resources and capital to create goods as well as the services. Physical capital like technology, tools, machines and also include the intellective property like trademarks, copyrights and patents. It also comprise of the human capital like training, experience and skills. In U.S., natural resources come from the land owned by the individuals or the corporations or at government lease at national and state level. Some measures are taken by US government for utilizing the natural resource like in case of controlling the pollution (Government of America, 2008). The labour force of U.S. which includes unemployed populace was about 154.1 million in 2009. Labour force in terms of occupation included sales and office sectors of 24.2%, managerial, professional, and technical sectors of 37.3%, manufacturing, extraction, transportation, and crafts sectors of 20.3%, other sectors or services to be 17.6% and farming, forestry, and fishing sectors at 0.7% excluding the unemployed (Central Intelligence Agency, 2010). In terms of mineral resources, U.S. is prosperous and is at its peak in producing some of the mineral resources, which includes oil. USA has moderate climate and fertile farm soil. Also, U.S had extended coastlines towards the pacific and Atlantic oceans and also in the Gulf of Mexico. The corporations as well as the individuals possess mostly the technology and physical capital of U.S. Economy of U.S is prosperous due to the IT and profit in productivity over the years. Government have initiated repeated measures for purchasing or selling and utilising capital. Also, the government have intervened for recruiting and employing the labourers. To create goods and services, the managers organise and use the workers, natural resource and capital in accordance to the signals of the market. In a flexible organisation, mainly in highly mechanised and technological industries, where the skilful workers create, modify and also trade the products as soon as possible, decreases the hiring rate of managers and assign more of the authority to the disciplined team of labours. Mostly, these teams’ formed for a project and are dissolved after completing the project (Government of America, 2008). Service Economy The expanding sectors of U.S are technical and scientific service, financial service, and production of durable goods, real estate and health care. According to the Council on Competitiveness, commodity based production and low cost is vanishing from US and moving to the developing countries, where routine production takes place with low investment and this has been a major reason for the degradation of the US economy. In terms of GDP, agriculture has a small share. In the year 2009, it increases about 1.2% which is slightly more in comparison with the previous years (Central Intelligence Agency, 2010). Despite having trade deficit, U.S exceed in agriculture sector. U.S exports of farm products are estimated to be $ 78 billion as the largest share to be exported to the Asian countries. One fourth of US farm’s production is exported. Therefore, the agricultural part of the economy has positively contributed towards the US economy (Government of America, 2008). On the other hand, United States is having deficit in merchandise goods trade although, US exports approximately $ 994.7 billion trillion in goods and import more than approximately $1.445 trillion in 2009. The imports basically comprises of industrial supplies of 32.9%, and crude oil of 8.2%, agricultural products of 4.9%, capital goods of 30.4% (which includes telecommunications equipment, computers, motor vehicle parts, office machines, electric power machinery) and consumer goods of 31.8% which includes automobiles, clothing, medicines, furniture, and toys. US basically imports from the countries of China, Canada, Mexico, Japan, and Germany (Adhikari, n.d.). US exports that tried to provide a boost to the struggling economy basically comprised of agricultural products like soybeans, fruit, corn of 9.2%, industrial supplies like organic chemicals of 26.8%, capital goods which includes transistors, aircrafts, motor vehicle parts, computers, telecommunications equipment of 49.0% and consumer goods like automobiles, medicines of 15.0% (Central Intelligence Agency, 2010). Workers and Productivity “Americas high standard of living is due to the fact that American workers are among the most productive in the world, and a greater share of the American population works than in many other countries,” says the Council on Competitiveness (Government of America, 2008). Labour force grows steadily, supporting economic expansion. Immigrants are the main source of labour, due to which unemployment increases as the demand of labour increases (Government of America, 2008). The labour force of US which includes unemployed was about 154.1 million in the previous year. The reduction of unemployment rate in 2009 compared to 2008 asserts the fact that the economy of the United States us recovering from the economic downturn (Central Intelligence Agency, 2010). The other major advantage the US economy enjoys is the flexibility of the labors force. Basically, US laborers do not commit long term employment. Worker’s productivity depends on their education i.e. vocational as well as technical training and on their creativity. The largest group of US worker consists of more than 23 million in an office and administrative supporting jobs like that of secretaries, hotel clerk and telephone receptionists (Government of America, 2008). Macroeconomic Policy The Federal government promotes the conditions for economic expansion and employment. The Federal Reserve, the independent central bank of USA, handles the supply of money and decides the monetary policy, while the Congress and the President formulates the fiscal policy. The fiscal policy is subjected to academic and political debate. Some of the experts emphasize on the benefits to economy from the low tax costs and others harm the economy by government borrowings (Government of America, 2008). Challenges Global scenario of production and sales are changing constantly and same is applicable for the US economy too. Productions are essentially taking place at phases and discrete locations. Sales have increased in the discount stores and over the internet. Multinational companies are blending workers, capital, and natural resources from their firms and combine the suppliers to scatter all over the world for capturing the cost efficiencies at different phase of production and marketing. Other change has been the introduction of e-commerce, the selling part of goods and services takes place on the Internet. Online access had changed the industries business strategy and this has definitely proved beneficial for the US economy (Government of America, 2008). Conclusion After the economic crisis held in 2007, United States of America experiences major economic downturn. GDP had decreased from $ 14.61 trillion to $ 14.26 trillion. GDP in terms of per capita income has decreased to $ 46, 400 in 2009. Unemployment rate also increased from 5.8% to 9.3%. Investment declined to 12.5% of GDP. Inflation rate decreased from 3.8% to - 0.7%. Export decreased from $ 1.277 trillion to $ 994.7 billion. Since, US is technologically advanced as well as rich in mineral resources, the experts perceive that US will not move remain economic distress for long. With the technological advancement and intellectual abilities along with the vast natural resources, it is expected that the country will soon come out of the downturn that was primarily caused by the lack of regulations in the financial segment (Central Intelligence Agency, 2010). The President Obama signed the American Recovery and Reinvestment Act, which will create 3.5 million of jobs and make investments in infrastructure and provide 95 % Americans, a tax cut. A housing program will be introduced to stabilize the market and millions of people would be financed at low mortgage costs. Investments are made in the segments of energy, health care and education to restore fiscal accountability to the spending by the government to get better facilities (Organising for America, n.d.). References Adhikari, S., No Date. Making Agriculture Trade Liberalization Work for the Poor: Evidences from South Asia. Institute for Integrated Development Studies. [Online] Available at: http://www.saneinetwork.net/research/sanei9/Study%2013/Abstract.pdf [Accessed 28 May, 2010]. Central Intelligence Agency, 2010. Economy. United States. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html [Accessed 28 May, 2010]. Government of America, 2008. Americans Produce What the World Need and Wants. Goods and Services. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415221757eaifas0.2987482.html [Accessed 28 May, 2010]. Government of America, 2008. Banking, insurance, investment among the keys to U.S. growth and success. A Service Economy. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415222038eaifas0.9101831.html [Accessed 28 May, 2010]. Government of America, 2008. Numerous and efficient workers are crucial to U.S. economic success. Workers and Productivity. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415223106eaifas0.4034693.html [Accessed 28 May, 2010]. Government of America, 2008. Government policies help assure steady economic growth. Macroeconomic Policy. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415223532eaifas0.3354151.html [Accessed 28 May, 2010]. Government of America, 2008. Americans adapt rapidly to new technologies and changing economic conditions. The Times They Are A-Changing. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415223758eaifas4.938906e-02.html [Accessed 28 May, 2010] Government of America, 2008. Despite its many successes, the U.S. economy faces important challenges. Trouble Ahead, Trouble Behind. [Online] Available at: http://www.america.gov/st/econ-english/2008/April/20080415224131eaifas0.2664606.html [Accessed 28 May, 2010]. Organising for America, No Date. The Current Situation. Economy. [Online] Available at: http://www.barackobama.com/issues/economy/ [Accessed 28 May, 2010]. Bibliography Bardes, B & Et. Al. American Government and Politics Today: The Essentials. Cengage Learning, 2008. Frumkin, N. Tracking Americas Economy. M. E. Sharpe, 2004. Read More